United States Court of Appeals, First Circuit
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Scribd Government DocsUnited States Court of Appeals, First Circuit
Uploaded by
Scribd Government Docs978 F.
2d 767
78 Ed. Law Rep. 307
BUSINESS CREDIT LEASING, Plaintiff,
v.
CITY OF BIDDEFORD, Defendant, Third-Party Plaintiff.
BIDDEFORD SCHOOL DEPARTMENT, Defendant, ThirdParty
Plaintiff, Appellee,
v.
INSTRUCTIONAL SYSTEMS, INC., Third-Party Defendant,
Appellant.
No. 92-1257.
United States Court of Appeals,
First Circuit.
Heard Sept. 11, 1992.
Decided Nov. 2, 1992.
Robert E. Rochford with whom Dunn, Pashman, Sponzilli, Swick &
Finnerty, Hackensack, N.J., Elizabeth G. Stouder, and Richardson &
Troubh, Portland, Me., were on brief, for appellant.
Jerrol A. Crouter with whom Drummond Woodsum Plimpton &
MacMahon, Portland, Me., was on brief, for Biddeford School Dept.
Before TORRUELLA, Circuit Judge, ALDRICH, Senior Circuit Judge,
and BOUDIN, Circuit Judge.
BAILEY ALDRICH, Senior Circuit Judge.
On April 17, 1989 Biddeford School Department (Biddeford1 ) contracted with
Instructional Systems, Inc. (ISI), a New Jersey corporation, to purchase a
computer-assisted learning system and services from ISI for approximately
$580,000 over a six year period. The agreement provided,
Biddeford has the right to cancel this agreement after the first year of operation. If
2
Biddeford opts to cancel, Instructional Systems will take over the equipment lease
and remove the equipment.
3
At that time, as ISI knew, there was not yet an equipment lease. On September
21, 1989 Biddeford entered into a lease with Business Credit Leasing, Inc.
(BCL) under which Biddeford agreed to pay BCL a total of $600,000 over the
five year term2 of the lease and to vest current and future ownership of the
equipment supplied by ISI in BCL, with an option in Biddeford to turn over the
equipment to BCL at the end of the lease, or to purchase from BCL at the then
value. The lease was not assignable without BCL's consent. The day previous,
September 20, ISI had agreed with BCL (the "remarketing agreement") that if
Biddeford should default on the lease ISI would take possession of the
equipment as BCL's agent and use its best efforts to resell for BCL's benefit.
Out of these three seemingly straightforward agreements we have, in ISI's
view, a very complicated situation.3 One of the difficulties is that the alleged
complexities may never have been thought of by ISI until long after suit was
brought.
Biddeford commenced a so-called pilot program, but on March 20, 1990 it
notified ISI that it was exercising its option to cancel the agreement in June,
concededly timely, and requested ISI to "take over the said equipment lease."
ISI took back the equipment, under protest, but did not make the payments due
on the lease. Instead, according to the affidavit of a Mr. Dunn, its New Jersey
counsel, it attempted to negotiate a settlement with Biddeford and BCL, on
what grounds does not appear. Rather than agreeing, BCL brought this action
against Biddeford for the lease payments. Biddeford denied liability, and, by a
third party complaint, sought declaratory relief to the effect that ISI, rather than
it, was obligated for the payments, but that if this was not so, and Biddeford
must pay, ISI was required to reimburse it.
On January 7, 1991 Mr. Dunn accepted service of the third party summons
received, together with the complaint, on December 24, and assigned
responsibility for the litigation to a younger partner. This partner failed to retain
local counsel, and neglected to file an answer or other pleading himself within
the 20 days specified in the summons. Fed.R.Civ.P. 12(a). In due course ISI
was defaulted. The balance of this opinion is devoted to unsuccessful attempts
to remove the default. We affirm.
Default was entered on January 29. On February 14 the partner, who had been
on trial and forgot about the case, telephoned local counsel who had been
approached, but not definitely retained, and learned the bad news. On February
15 counsel moved to set aside the default and answer late, with a memorandum
to follow. This memorandum, filed by local counsel on February 22, asserted
that Biddeford could cancel only if the ISI system did not improve the test
results of the students, and that it canceled for other reasons. "Thus, ISI has a
meritorious defense to the claim." The late filing of the answer was asserted to
be due to misplacing the papers and the busy trial schedule of the partner. This,
and the basis of the defense that the right to cancel was conditional, was
supported by an assertion, unexplained, in the partner's affidavit. Biddeford
replied, pointing out that ISI was offering no valid defense. In March, local
counsel responded again that the cancellation clause was ambiguous and added
that ISI's contract-signing representative's affidavit showed that he understood
the agreement could be canceled only for "non-appropriation of funding or lack
of performance." No attempt was made to deal with the unambiguous contract
language recited in the complaint, or with the parole evidence rule.
7
On April 30 the magistrate to whom the case had been assigned rendered an
opinion denying the motions because of insufficient excuse and no showing of
an adequate defense.4 On May 10 ISI filed an objection to the failure to find the
excuse acceptable. Nothing was said about a defense. On May 17 it moved to
supplement the record, adding affidavits by Mr. Dunn and his partner attesting
to the fact that, unrecognized by both, the partner, though working, had been
suffering personal difficulties due to concern over serious family health
problems, and had not been himself.5 On May 24 Biddeford responded,
contesting the sufficiency of the partner's condition as an excuse under all the
circumstances, and noting the magistrate's discussion and conclusion of no
adequate defense.
Filings did not end there. On June 5, without leave, ISI submitted a 15 page socalled reply memorandum. It protested that its objection to the magistrate's
report included the matter of viable defenses because it had annexed a copy of
the partner's February affidavit that claimed the cancellation clause was
ambiguous. This was an erroneous argument; the objection's reference to the
affidavit was in quite another particular. The memorandum proceeded to set out
wholly new defenses based on the interrelationship of the three agreements, the
lack of an assignment of the equipment lease and other alleged difficulties. It
asked that the magistrate's decision be reversed, so that ISI could proceed to
trial, or, alternatively, that the case be returned to him for further consideration.
The district court rendered its decision on July 31, 1991, 770 F.Supp. 31.
Procedurally it held that it need not decide whether ISI's June 5 reply
memorandum was too late, because ISI had already made a serious failure. It
had not presented a proper defense to the magistrate, nor had it objected to the
magistrate's rejection. The court quoted our language that there is no review as
of right of a new contention. Paterson-Leitch Co. v. Massachusetts Municipal
Wholesale Electric Co., 840 F.2d 985, 990 (1st Cir.1988), citing Fed.R.Civ.P.
72(b). See also, 28 U.S.C. 636(b)(1) (1992 Supp.). Although it felt the new
information of the partner's family worries was sufficient to excuse the late
filing of an answer, it refused to find that this one lawyer's problems were
sufficient, under the overall circumstances, to excuse the late submission of a
new defense.
10 three contracts have all been in existence since 1989 and if ISI thought that their
The
relationship provided a potential meritorious defense, that argument should have
been raised before the Magistrate Judge.
11
At the court hearing Mr. Dunn stated that, as far as his firm knew, ISI had no
knowledge of the content of the equipment lease until suit was commenced. In
its reply brief ISI magnifies this to conclusive evidence of ISI's ignorance. We
find this hard to accept. 6 With client knowledge, the court's finding of lack of
diligence, on which it based its conclusion of waiver, is even more supportable.
12
We are not led to be disturbed by the court's decision. The amount of money
involved, much emphasized by ISI, rather than invoking liberality, points to a
duty of due care. If Biddeford's lease could make for trouble, it strikes us as
odd that ISI, who was in the business, led Biddeford, an unsophisticated
customer, to believe it would be wholly free to cancel and then not supervise it
as to future pitfalls, if there were such. Instead, ISI now complains of the terms
of the lease, and the "conflicting interplay" caused by the remarketing
agreement that allegedly barred it from becoming an assignee, an agreement
that it made itself. True, there were three agreements, but if the troika was
unmanageable, this is late in the day.
13
Affirmed.
The City of Biddeford, formerly a party to this litigation, was dismissed, with
no appeal taken
The difference between six years, ante, and five is not presently material
"This matter involves the complex and sometime conflicting interplay of three
agreements among three separate parties."
The latter is now, quite properly, conceded; the cancellation clause was
peradventure unambiguous. This is the end of the road under Maine law, Loe v.
Town of Thomaston, 600 A.2d 1090, 1092 (Me.1991), and universally.
Fairfield 274-278 Clarendon Trust v. Dwek, 970 F.2d 990, 993 (1992);
Restatement, Contracts, 237. To cap this, ISI did not even offer parole
evidence, but only the affidavit of its representative, ante, as to his
understanding, for which no basis was given
5
ISI did not include this motion in the appendix. It was only by independent
examination thereof that we learned that the seeming suggestion in ISI's reply
brief here, signed by local counsel, that it also dealt with defense--"the full and
complete facts of why the Answer was not timely filed and with the full and
complete legal exposition of why the default should be lifted."--is quite
erroneous. The magistrate had listed six issues; the motion dealt only with one-the excuse for not timely filing. Whether or not the omission of this document
violated F.R.A.P. 30(a)(4), it violated more than a procedural rule to misstate
its contents
Could it be thought that ISI conducted its pre-suit negotiations with Biddeford
and BCL without having a copy of the lease? When, on September 20, 1989, it
entered into the remarketing agreement with BCL, "In consideration of BCL
entering into the below said lease ..." did it not see it? Biddeford had already
signed a duplicate original on September 7, so it was in existence
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